January 18, 2020
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Now, A Few Growth Pangs

An overheated economy shows a few scars-- real estate is in for a slump, stockmarkets are volatile and software has some dubious players

Now, A Few Growth Pangs
Now, A Few Growth Pangs
It's not a black-and-white verdict—yet. There are shades of grey to grapple with. But despite the ongoing growth story, there are increasing apprehensions that the Indian economy could be in trouble in the near future. Suddenly, a combination of macro and micro factors have stymied the bullish sentiments across several asset markets—real estate, stockmarkets, and commodities (like metals). While optimists continue to be vocal about India's potential, the investors are gripped with a sense of fear.

Rising interest rates are a cause for concern. A one per cent hike on retail loans—especially homes and cars—has wreaked havoc in both markets. Inflation continues to be high and consumer prices show no declining signs. There's a feeling that the government may come down more heavily on manufacturers in a bid to control inflation. Both the new interest rate regime and inflation-related policies can hurt corporate earnings in the future quarters. And, banks will be hit by lower credit offtake.

That's why on April 2, the 30-stock Sensex was down over 600 points, its second-biggest fall ever. Over the next three trading sessions, it did recover two-thirds of the loss. But this yo-yo-like uncertainty has been a feature in the stockmarkets in the recent past. In the case of real estate, worried consumers recalculated EMIs or postponed buying decisions, builders decided to go slow on future plans, and lenders have accepted that the era of ever-growing demand for home loans is over.

Add to these 'real' problems the anxieties about the growing 'parallel' economy. The worst suspicions are turning out to be true, with indications that tainted and black money may be flowing into the real estate sector and stockmarkets, and being turned 'white' through bogus export earnings in the software segment. The estimates for the black economy vary—between $680 billion and $1.5 trillion, or 40-85 per cent of India's gdp. Economic reforms have had little impact on its growth.

Thus, there are reasons to believe that three of the most booming sectors—real estate, stockmarkets and software—are in trouble. Outlook brings you a ready reckoner to discern between the real, parallel and the unreal.

By Suchi Srivastava, Rajesh Gajra and Arindam Mukherjee with Lola Nayar
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